The Blog - Wind energy market analysis

Posted 12/04/2018

Ilaria Valtimora

Why should offshore wind investors trust the Polish government?

Businesses are starting to look seriously at developing offshore wind farms in the waters near Poland – but can investors trust a government that has so effectively damaged the onshore wind sector? Ilaria Valtimora reports

Only 51MW of wind capacity was installed in Poland last year. That number comes from the International Renewable Energy Agency’s Capacity Statistics Report, which was published last week.

It also comes as no surprise. The Polish government, led by the Law & Justice Party since 2015, has pursued a set of anti-wind policies in the last three years to prioritise growth in coal. But this may be about to change as the country looks set to become one of the most promising emerging markets for offshore wind in Europe.

This year we have seen a series of promising signs.

In January, Polish think tank the Foundation for Sustainable Energy said that the country could install 4GW of offshore wind capacity in the Baltic Sea by the end of 2030 and 8GW by the end of 2035. It has also committed to the Memorandum of the Polish Offshore Energy Sector, which has been signed by 44 entities that are looking to support the development of the offshore wind industry in Poland.

And this week, the Polish state-owned transmission system operator PSE has told Polish newspaper Rzeczpospolita that it will be ready to connect 4GW of offshore wind to the power grid by the end of 2027. PSE president Eryk Kłossowski added that if the government carries out the much-needed network upgrades, it would be also able to double this potential capacity to 8GW.

This activity has started to attract key players in the global offshore wind market.

For example, last month, Norwegian oil giant Equinor – previously Statoil – acquired a 50% interest in the Bałtyk Środkowy 2 and 3 offshore wind schemes, which are set to total 1.2GW, from Polenergia. And Poland’s largest utility PGE last month unveiled a plan to develop up-to-2.5GW of offshore wind capacity in the Baltic Sea by 2030.

We can see why growing the offshore wind industry in Poland makes sense.

Offshore wind could benefit the Polish economy in many different ways, including to support industrialisation, raise tax revenues and jobs throughout the supply chain.

Investing in offshore wind farms with a capacity of 4GW would create sufficient scale to locate a large part of the supply chain locally; and Poland already has companies that have been providing components to offshore wind farms. These include turbine foundations, towers, marine cables and transformer stations, as well as vessels for the construction and servicing of offshore wind turbines. This means that investing in building the offshore wind sector in Poland would directly benefit Polish businesses.

For example, in a report published by consulting firm McKinsey in 2016, the cost of building 1MW of offshore wind capacity in Poland was estimated to be at €4m – but this was a figure based on a WindEurope report in early 2016 and so may well have dropped. Even so, using that figure means that Poland would have to attract at least €16bn of investment to install 4GW of offshore wind by 2030. Government support would be crucial to do that.

But will the Polish government be able to attract investors?

Well, the approach that the Polish government has taken so far with onshore wind is not reassuring. The Law & Justice Party delayed and then cancelled the introduction of a tendering system to support wind; brought in a law that increased the distance wind farms had to be built from homes, ruling out huge areas from new schemes; and brought in higher taxes.

In addition, a clear example of how badly onshore wind firms have been treated in Poland can be found in the case of US developer Invenergy, which launched a legal action against the government last year, claiming $700m of damages because of its approach to the wind sector.

But the government might now take a different approach towards offshore wind given the economic benefits that it could produce. After all, the UK has supported growth in the offshore wind sector while being more obstructive to onshore wind, so there is a precedent for a country favouring one over the other. Not everyone’s like Germany.

WindEurope chief executive Giles Dickson, speaking at DNV GL Hamburg Offshore Wind Conference this week, said there were reasons to be optimistic about the growth of offshore wind market in Poland. He said that, while the government has not been friendly to onshore wind, it has now an economic and industrial policy interest in developing offshore wind projects as they create a lot of jobs.

In fact, the Polish government has recently presented to the parliament an amendment to the country’s Renewable Energies Act to allow for offshore wind auctions, and the first one could happen as soon as next year.

That sounds good, but the Polish government has already demonstrated that it can build and then destroy a promising market in onshore wind. We recommend caution.